When Did the Stock Market Start to React Less to Downgrades by Moody’s, S&P and Fitch?

Quaderni - Working Paper DSE N° 1066

62 Pages Posted: 12 May 2016

See all articles by Ginevra Marandola

Ginevra Marandola

European Commission, Joint Research Centre; University of Bologna - School of Economics, Management, and Statistics; European Commission-Joint Research Centre

Rossella Mossucca

Einaudi Institute for Economics and Finance (EIEF)

Date Written: March 2016

Abstract

This paper studies the stock market response to corporate downgrades by S&P, Moody's and Fitch between 1999 and 2011. The empirical evidence shows that cumulative abnormal returns around downgrades become significantly smaller (in absolute value) after the release in 2003 of the Securities and Exchange Commission’s Report on credit rating agencies. The Report addresses concerns related to the agencies and marks a turning point in the attitude of U.S. regulators towards a more critical approach. This has a strong impact on investors that respond by reacting less to downgrades.

Keywords: credit rating agencies, credit ratings, stock market information, event study

JEL Classification: G14, G24, G28

Suggested Citation

Marandola, Ginevra and Mossucca, Rossella, When Did the Stock Market Start to React Less to Downgrades by Moody’s, S&P and Fitch? (March 2016). Quaderni - Working Paper DSE N° 1066, Available at SSRN: https://ssrn.com/abstract=2777954 or http://dx.doi.org/10.2139/ssrn.2777954

Ginevra Marandola (Contact Author)

European Commission, Joint Research Centre ( email )

Brussels
Belgium
3287433987 (Phone)

University of Bologna - School of Economics, Management, and Statistics ( email )

Piazza Scaravilli 1
40126 Bologna, fc 47100
Italy

European Commission-Joint Research Centre

Belgium

Rossella Mossucca

Einaudi Institute for Economics and Finance (EIEF) ( email )

Via Due Macelli, 73
Rome, 00187
Italy

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